Equities Trade Positive Albeit Capped Gains Ahead of Sino-U.S. Trade Talks

Stocks trade positive on trade talk related optimism, but broad-based cautious investor tone caps gains. 

Sino-U.S. Trade Talks
Sino-U.S. Trade Talks

Summary: US stock market last night suffered a catastrophic loss on escalating trade tensions following Trump administration’s move to blacklist Chinese firms ahead of key trade talks between China and the U.S.A. The US Greenback took a blow following Fed Chair Powell’s comments in his speech yesterday when he stressed that the recent Fed decision was no sign of long term quantitative easing and was more of a technical exercise to ensure that financial system has enough functioning liquidity as there are plans for expanding its balance sheet once again in near future.

In Pacific-Asian market hours, despite the recent move by Trump’s administration, Chinese offices stated that they are set to participate in trade talks and are open to the possibility of a partial trade deal which helped ease investor concerns and bring about a fresh wave of positive price action in the global financial markets. However, trades still maintained cautious stance as China retaliated by announcing restriction of visa for U.S. visitors with “Anti-China” links and this made investors across the globe lose optimism on possibility of any form of a trade deal between China and USA in talks which are set to begin today in Washington. Following mixed activity in Asian markets,

European stock market saw a subdued start for the day weighed down by cautious investor sentiment on trade talk proceedings and Brexit woes as odds of no-deal Brexit continues to rise with each passing day. In the forex market, despite prevalent cautious investor tone in the broad market major global currencies made some headway on account of USD’s weakness influenced by Powell’s speech. 

Precious Metals: Rare metals continue to trade positive in the global market as investor sentiment was mixed given geopolitical event proceedings. Odds of no-deal Brexit scenario and Sino-U.S. trade talk related developments combined with weak USD underpinned demand for safe-haven assets. 

Crude Oil: Despite China’s relation ahead of trade talks on the US move to blacklist Chinese firms, the willingness from both parties to enter trade talks helped improve sentiment surrounding crude oil. Further escalating tensions in the Middle East – Iran & OPEC nations also boosted Crude oil price. 

USD/JPY: The pair is trading positive in the global market despite pressure on US Greenback following Powell’s speech yesterday. The support for USD bulls comes from slight optimism surrounding Sino-U.S. trade talks as China expressed willingness for partial trade deal albeit retaliating against US blacklist move. 

On The Lookout: All attentions remain focused on Sino-U.S. trade talks which will see high-level representatives from both nations meeting face to face in Washington later today. While China has made a move to restrict visa for US travellers with ties to anti-china movement as form of retaliation against US move to blacklisting Chinese start-ups and tech firms, the representatives of the nation are open to any form of trade deal with the USA be it a partial trade deal or full deal encompassing all key issues such as copyright, IP infringement, national security, and trade etc. US President Trump wants only a trade deal which will see all issues between both nations addressed by China if the trade deal is to be signed by both nations.

On Brexit front, the recent developments following comments from EU & UK representatives are hinting at a scenario of all talks between both parties failing and leading to no-deal Brexit outcome. This has led to UK MP’s planning for a special sitting in Parliament to decide on the future of Brexit and the UK. The meeting will occur on 19th October post a crunch EU summit and will be the fifth-ever Saturday session for House of Common since 1939 with last occurrences taking place during the outbreak of World War 2 and invasion of the Falkland Islands which is a sign of importance and magnitude of the meeting.

Meanwhile, PM Boris Johnson faces a new issue as headlines suggest that five of his cabinet ministers along with a very large number of conservative MPs are poised to resign from their designation in order to prevent no-deal Brexit should the situation ever proceed to that extent which leaves odds of no-deal Brexit scenario in highly uncertain standpoint. On macro calendar front, traders now await a speech from FOMC member George, Fed Chair Jerome Powell and FOMC Meeting Minutes and US EIA weekly crude oil stockpile data and JOLTs Job Openings data. 

Trading Perspective: On account of weaker USD, global currencies are likely to continue trading positive awaiting further cues from Fed meeting minutes which will provide short term directional bias for the forex market. US stock and index futures trading in the international market saw positive activity ahead of trade talks between the US and China which are set to resume in Washington today. This suggests Wall Street will see a positive opening for the day, but trades will wait for further updates once trade talks begin before placing new and major bets. 

EUR/USD: The pair is trading positive in the global market as trade talk related optimism rose following comments from China on being open for a partial trade deal. Weaker US Greenback in the global market on Powell’s comments also supported EURO, but China’s move to restrict visa of US travellers and cautious stemming from the update capped the pair’s gains. Traders now await updates on trade talk and Fed meeting minutes for short term profit opportunity and directional trading cues. 

GBP/USD: The pair is trading flat in the global market as both sides of the pair are being put under considerable pressure. USD is weighed down by Powell’s comments hinting at plans for increasing balance sheet soon while GBP is weighed down by increasing uncertainty surrounding Brexit as DUP rejected EU’s offer for a time limit on Irish backstop agreement. Traders now await further updates from EU-UK talks and Fed meeting minutes for short term profit opportunity and directional trading cues.

USD/CAD: The pair saw sharp declines towards 1.3300 handle earlier in the day and is trading well near the mentioned price level on USD’s weakness. While USD faced pressure on Powell’s comments, a boost in Crude oil price helped commodity-linked currency Canadian Loonie make some headway. However, build in US API crude oil inventory data capped CAD’s gains. Traders now await updates from Sino-U.S. trade talks, Fed Meeting Minutes release and US EIA weekly stockpile data for short term profit opportunity and directional trading cues.

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